Single capital, investment choices and preferential tax regimes

The assumption of separate tax bases on which the literature of preferential tax regimes has been based is not necessarily the case. In this paper we assume a single type of capital, or money, invested in different industries as well as in different countries. Tax elasticities can differ across industries depending on production technologies and therefore governments have incentives to provide preferential tax treatment to certain industries. Then it is shown that preferential regimes may not be desirable in different senses from the literature.